Types of Income Exempted from Income Tax in India

Last Updated at: January 09, 2020
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Types of Income exempted from income tax in India

Income tax is a tax payable on income earned by any individual/business exceeding the exemption limit prescribed by the Income-tax department. But, not many are aware that as per Section 10 of the Income Tax Act, 1961, there are certain types of income that are exempt from income tax.

As you prepare to file your income tax returns, it is good to check out if any of your income falls under the category of tax-free incomes. Here are the types of income that don’t attract any income tax.

File Your ITR Right Now

List of tax-free income (or) Income exempted from tax:

 

  1. Agricultural Income [Section 10(1)]

Section 2(1A) of the IT Act, defines what are considered as agricultural income in India-

  • Any revenue or rent derived from land which is situated in India and is used for agricultural purpose.
  • Income derived from agricultural operations including processing of agricultural produce to sell in the market.
  • Any income from farmhouse subject to satisfaction of certain conditions mentioned in section 2(1A).
  • Income from nursery saplings or seedlings is considered as agricultural income.
  1. The income of HUF [Section 10(2)]

Revenue received from family income or income from the impartible family estate/property by any member of the Hindu undivided family (HUF) is exempt from income tax.

 

3. Tax exemption on Profit share from firm/LLP [Section 10(2A)]

The profit share received by a partner from a firm is exempt from tax in the hands of the partner. Similarly, the profit share of a partner of LLP from the LLP will be exempt from tax in the hands of the partner.

NOTE: This tax exemption is limited only to profit share and does not apply to interest on capital and remuneration received by the partner from the firm/LLP.

  1. Interest as income on non-residents [Section 10(4)]
  •  Any income to non-residents by way of interest on certain notified securities or bonds which includes income by way of premium on the redemption is exempt from tax. [Section 4(1)]
  •  In case of an individual’s income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India following FEMA, 1999 is exempt from income tax. [Section 4(2)]

NOTE: Exemption under section 4(2) is available only if a person is a resident outside India as defined under FEMA, 1999 or a person who has been permitted by the RBI to maintain the account mentioned above. 

In case of an individual, [Section 10 (4B)]

  • A citizen of India (or)
  • A person of Indian origin, who is a non-resident, income from interest on notified savings certificates is exempt from tax.
  1. For any income on interest received by a non-resident or a foreign company in respect of Rupee Denomination Bonds issued outside India from 17 September 2018 to 31 March 2019 by Indian company/ business is exempt from tax. [Section 10 (4C)]
  1. Capital gains arising out of the transfer of capital assets, rupee denomination bonds or Derivatives by Category-III AIF [Section 10(4D)]
  2. Leave Travel Concession [Section 10(5)]

As per section 10(5), an employee (an Indian or a foreign citizen) can claim to leave travel concession or assistance received or due to the employee from his employer in connection with the proceedings on leave to any place in India. 

  1. Remuneration received by diplomats and their staff:

As per Section 10(6) (ii), remuneration received by an official of an embassy, high commission, consulate or trade representatives from foreign or staff of those officials is exempt from tax, if the corresponding Indian official enjoys similar exemption in the foreign country.

9. Technical fees as Income received by a specific foreign company:

Income arising by way of royalty or fees for technical services received per the agreement entered by the notified foreign company with that of the Government for providing services in or outside India in projects connected with the security of India is exempted from tax. Section 10(6C)

  1. Any allowances or prerequisites paid to Indian government officials for rendering services outside India are exempt from tax. Section 10(7)
  2. Exemption to Gratuity

(a) Gratuity received by Government Servants (Central govt /State govt/ local authority) is exempted from tax. Section 10(10)(i)

(b)   In the case of non-governmental employees, gratuity is exempted from tax if employees are covered by the Payment Gratuity Act, 1972. Section 10(10)(ii)

12. Pension – Section 10(10A):

 

A monthly pension received by a government employee is completely exempt from tax.

  1. Leave salary – Section 10(10AA)

Leave encashment by a governmental employee at the time of retirement is exempt from tax.

  1. Retrenchment compensation- Section 10(10B)

The compensation received by an employee at the time retrenchment is exempt from tax to a certain limit.

  1. Amount received from Provident Fund

There is a tax exemption concerning the amount received from the public provident fund/statutory provident fund/un-recognised provident fund.

  1. Awards and Scholarships


Monetary assistance received in the form of awards or scholarships is exempted from income tax under Section 10 (16). There is no cap on the upper limit and the total money received as a scholarship is entitled to tax exemption. 

 

 

 

Types of Income Exempted from Income Tax in India

285

Income tax is a tax payable on income earned by any individual/business exceeding the exemption limit prescribed by the Income-tax department. But, not many are aware that as per Section 10 of the Income Tax Act, 1961, there are certain types of income that are exempt from income tax.

As you prepare to file your income tax returns, it is good to check out if any of your income falls under the category of tax-free incomes. Here are the types of income that don’t attract any income tax.

File Your ITR Right Now

List of tax-free income (or) Income exempted from tax:

 

  1. Agricultural Income [Section 10(1)]

Section 2(1A) of the IT Act, defines what are considered as agricultural income in India-

  • Any revenue or rent derived from land which is situated in India and is used for agricultural purpose.
  • Income derived from agricultural operations including processing of agricultural produce to sell in the market.
  • Any income from farmhouse subject to satisfaction of certain conditions mentioned in section 2(1A).
  • Income from nursery saplings or seedlings is considered as agricultural income.
  1. The income of HUF [Section 10(2)]

Revenue received from family income or income from the impartible family estate/property by any member of the Hindu undivided family (HUF) is exempt from income tax.

 

3. Tax exemption on Profit share from firm/LLP [Section 10(2A)]

The profit share received by a partner from a firm is exempt from tax in the hands of the partner. Similarly, the profit share of a partner of LLP from the LLP will be exempt from tax in the hands of the partner.

NOTE: This tax exemption is limited only to profit share and does not apply to interest on capital and remuneration received by the partner from the firm/LLP.

  1. Interest as income on non-residents [Section 10(4)]
  •  Any income to non-residents by way of interest on certain notified securities or bonds which includes income by way of premium on the redemption is exempt from tax. [Section 4(1)]
  •  In case of an individual’s income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India following FEMA, 1999 is exempt from income tax. [Section 4(2)]

NOTE: Exemption under section 4(2) is available only if a person is a resident outside India as defined under FEMA, 1999 or a person who has been permitted by the RBI to maintain the account mentioned above. 

In case of an individual, [Section 10 (4B)]

  • A citizen of India (or)
  • A person of Indian origin, who is a non-resident, income from interest on notified savings certificates is exempt from tax.
  1. For any income on interest received by a non-resident or a foreign company in respect of Rupee Denomination Bonds issued outside India from 17 September 2018 to 31 March 2019 by Indian company/ business is exempt from tax. [Section 10 (4C)]
  1. Capital gains arising out of the transfer of capital assets, rupee denomination bonds or Derivatives by Category-III AIF [Section 10(4D)]
  2. Leave Travel Concession [Section 10(5)]

As per section 10(5), an employee (an Indian or a foreign citizen) can claim to leave travel concession or assistance received or due to the employee from his employer in connection with the proceedings on leave to any place in India. 

  1. Remuneration received by diplomats and their staff:

As per Section 10(6) (ii), remuneration received by an official of an embassy, high commission, consulate or trade representatives from foreign or staff of those officials is exempt from tax, if the corresponding Indian official enjoys similar exemption in the foreign country.

9. Technical fees as Income received by a specific foreign company:

Income arising by way of royalty or fees for technical services received per the agreement entered by the notified foreign company with that of the Government for providing services in or outside India in projects connected with the security of India is exempted from tax. Section 10(6C)

  1. Any allowances or prerequisites paid to Indian government officials for rendering services outside India are exempt from tax. Section 10(7)
  2. Exemption to Gratuity

(a) Gratuity received by Government Servants (Central govt /State govt/ local authority) is exempted from tax. Section 10(10)(i)

(b)   In the case of non-governmental employees, gratuity is exempted from tax if employees are covered by the Payment Gratuity Act, 1972. Section 10(10)(ii)

12. Pension – Section 10(10A):

 

A monthly pension received by a government employee is completely exempt from tax.

  1. Leave salary – Section 10(10AA)

Leave encashment by a governmental employee at the time of retirement is exempt from tax.

  1. Retrenchment compensation- Section 10(10B)

The compensation received by an employee at the time retrenchment is exempt from tax to a certain limit.

  1. Amount received from Provident Fund

There is a tax exemption concerning the amount received from the public provident fund/statutory provident fund/un-recognised provident fund.

  1. Awards and Scholarships


Monetary assistance received in the form of awards or scholarships is exempted from income tax under Section 10 (16). There is no cap on the upper limit and the total money received as a scholarship is entitled to tax exemption. 

 

 

 

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